Donations to municipalities—the rules are changing

Municipalities have the status of a qualified donee and can, therefore, issue charitable donation receipts. But municipalities do not have the same responsibilities in connection with the issue of donation receipts that registered charities currently have. However, this will change very soon. As a result of changes in the June 6, 2011 federal budget, effective January 1, 2012, municipalities will have additional responsibilities in connection with the issue of donation receipts.

Municipalities will need to keep books and records supporting any official donation receipts that are issued. They may also be requested to give access to such records to the CRA. If they fail to keep adequate records, or are involved in the improper issuance of donation receipts, the CRA may suspend a municipality’s receipting privileges or qualified donee status. Registered charities are required to observe the following rules for record keeping. It’s expected that these rules will also apply to municipalities:

• Maintain the donation records for two years after the donation has been made (in the case of 10 year gifts, records must be kept for 10 years plus two years after the period has expired).
• Minutes of meetings must be retained for the full time the municipality is eligible to issue donation receipts and for two years after it has had its status revoked.
• General ledgers, other books and records, financial statements and related source documents must be kept for six years after the end of the taxation year to which the donations relate.

Municipalities will need to review their document retention bylaw and ensure that it is consistent with the upcoming requirements. They will also need to ensure they are keeping appropriate records to support any official donation receipts that are issued.